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Saturday, September 29, 2012

Do you have a financial interest in, or signature authority over, a Mexican financial account?

If you are a United States citizen or resident and have a financial interest in or signature authority over a Mexican financial account, including a bank account, brokerage account, mutual fund, trust, or other type of foreign financial account, the Bank Secrecy Act may require you to report the account yearly to the Internal Revenue Service by filing a Foreign Bank Account Report (FBAR). Generally, an FBAR needs to be filed if the US citizen or person (a) has a financial interest in or signature authority over a Mexican financial account and (b) the aggregate value of such account exceeds $10,000 at any time during the calendar year.

It is important to notice that:

- Some relief has been granted to certain individuals with signature authority over but no financial interest in foreign financial accounts, and in certain cases the deadline to report signature authority over certain accounts has been extended to June 30, 2013;

- This year, the IRS reopened the Offshore Voluntary Disclosure Program following continued strong interest from taxpayers and tax practitioners after the closure of the 2011 and 2009 programs; and

- There may be filing exceptions for (a) certain foreign financial accounts jointly owned by spouses; (b) persons included in a consolidated FBAR; (c) correspondent accounts; (d) Foreign financial accounts owned by a governmental entity; (e) foreign financial accounts owned by an international financial institution; (f) IRA owners and beneficiaries; (g) participants in and beneficiaries of tax-qualified retirement plans; (h) certain individuals with signature authority over but no financial interest in a foreign financial account; (i) trust beneficiaries; and (j) foreign financial accounts maintained on a United States military banking facility.

The FBAR is not filed with the filer's federal income tax return. The FBAR is an annual report and must be received by the Department of the Treasury in Detroit, MI, on or before June 30th of the year following the calendar year being reported.

United States citizens or residents who reported and paid tax on all their taxable income for prior years but did not file FBARs should consider filing a delinquent FBAR, attaching a statement with an explanation of why the reports are filed late. Most likely, the IRS will not impose a penalty for the failure to file the delinquent FBAR if there were no underreported tax liabilities and the taxpayer has not previously been contacted regarding an income tax examination or a request for delinquent tax returns.

Mauricio Leon de la Barra is an international law attorney licensed to practice law in Mexico and California, and has more than 15 years of experience representing clients in cross-border business and real estate transactions and litigation involving international, U.S. and Mexican laws.